McCain: Let weak airlines fail

AAquila

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Sep 22, 2002
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McCain: Let weak airlines fail
by Jaret Seiberg in Washington
Updated 06:41 PM EST, Jan-9-2003
The incoming chairman of the Senate Commerce Committee warned the airlines Thursday, Jan. 9, that he would rather see carriers fail than waste billions of dollars to sustain economically doomed companies.
We should be reluctant to do anything that might keep inefficient businesses afloat, Sen. John McCain, R-Ariz., said at a hearing on the health of the airline industry. Many people believe that the basic business model of the traditional hub-and-spoke carriers was broken long before the current difficulties.
McCain said he is especially troubled about bailing out the major carriers because the discount airlines, which follow a different business model, have remained profitable and grown despite the economic downturn.
We must ask whether our actions would improperly distort the marketplace, McCain said. The ability of some carriers to remain profitable in the current climate raises questions about whether there is something wrong with the rest of the industry.
Still, McCain refused to shut the door to offering additional federal relief. Permitting airlines to fail would strengthen the dominant carriers even more, which would mean higher prices for consumers and less service to rural markets. We face no easy choices, he said.
The senator suggested the hub-and-spoke carriers need to first clean up their own houses, including getting labor costs under control. Along those lines, McCain is the primary sponsor of a bill that would force labor disputes in the airline sector to binding arbitration if the parties reach an impasse.
Executives from AMR Corp., Northwest Airlines Inc. and U.S. Airways Inc. may have inadvertently provided support for the camp that argues against propping up these hub-and-spoke carriers.
As American Airlines chairman Donald Carty testified, hub-and-spoke airlines are suffering primarily because their system is premised on business travelers paying premium prices for seats. Yet business travel was down 40% in 2002 compared to 2001, he said.
Northwest CEO Richard Anderson said the business travelers who are flying have become accustomed to discounted fares and are no longer are willing to pay top dollar. Business passenger revenue was down 21% in the first 11 months of 2002 compared with a year earlier and off 36% from 2000, he said.
Yet these executives said their business models are viable. Hub-and-spoke systems are the most efficient means to provide frequent service to most Americans, especially those outside of major cities, Anderson said.
Perhaps recognizing that additional cash outlays are not forthcoming, the executives instead called for the federal government to pick up a greater share of security costs and to cut taxes on airlines.
Public officials must abandon their convoluted view of the industry in which they profess to value its importance and then turn around and tax, regulate and fine us to the point of operational paralysis, U.S. Airways President David Siegel said.
Anderson also demanded that regulators permit code sharing agreements to advance. An arrangement between Northwest, Delta Air Lines Inc. and Continental Airlines Inc. has been stalled for months at the Department of Transportation.
Sen. Ernest Hollings, D.-S.C., said the airline sector is too important to the economy to permit it to collapse. Yet he said it was unclear what Congress should do.
We need to see real fixes with real results, not a system of booms and busts that overcharges customers in good times and asks for handouts from them in bad times, he said.
 
Aug 20, 2002
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Whilst Senator McCain has my greatest respect he is playing politics to a certain extent here.

Next time he wants to fly overseas on a 'fact-finding' junket tour will he only go if America West flies to that destination? Furthermore, can HP quickly ferry troops to any hotspot in the world?

The network carriers with overseas destinations must be supported by the government, just as the federal government supports highways and train service to the small cities in this country. Same difference.

McCain is simply placing a shot across the bow to get the attention of these unprofitable airlines.
 

Diesel8

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No, HP cannot fly to any destination with troops, but then that is the job of the military. I am sorry, but giving money to the majors because of CRAF is ridiculous. Had you said because of the US infrastructure, I would have been more likely to agree!
 

Busdrvr

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Aug 20, 2002
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[blockquote]
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On 1/10/2003 10:36:48 AM Speedbird wrote:


"IMO, your statement about international carriers needing government support represents an archaic view of the business. First off, the EU would block such a blatant move, especially after the US cried for years that their (EU's) flag carriers had to come off their respective government tits, and run their businesses like those in the US."

How many Airlines Does France have? Germany? GB? Italy? Canada? If Traffic drops in LH's markets, they simply cut back capacity. they do NOT have the same level of "competition". The US government HAS meddled CONSTANTLY in the US Airline, making it anything BUT a "free market". This is a very capital intensive industry. If AMR cuts back on capacity to meet demand, that cut doesn NOT result in a proportional cut in total costs. meanwhile, a smaller low pay outfit, who normally would have been crushed if they tried to go into that market, is able to "cheat' and throw in excess capacity. AMR is left with the decision to either keep in the capacity, or cut it only to have someone else fly it. In a truly "free" us market, we would likely have 3-4 big US carriers post mergerville, and the complete inability of any start-ups to get any traction.

"Second, nobody put a gun to the head of the major hub and spoke airlines to make them act like public utilities. These airlines are in business to make money (at least that was the original idea) and if a portion of the business doesn't produce the necessary financial returns, then get rid off it. That will put the monkey back on the politicians when their rural constituents scream bloody murder. Believe me that will get their attention!"

Yes it would, Anderson of NWA pointed out that NWA serves 6 (or seven) destinations in Miss, vs one for SWA. He also pointed out all the destinations Lott's constiuents could go WORLDWIDE with ONE STOP. Would it be a good thing for the economy to let these places go unserved for a period of time "to prove" to the political leaders that Air service is important? Maybe our econmy would be better if all industry was concentrated on a few large cities that the "cream skimming" airlines serve. Then we could ocasionally drive past all the ghost towns in middle america with our kids on vacation (ah, the nostalgia!)

"Lastly, McCain doesn't hate airline employees. He just hates giving more government handouts to poorly managed companies in the current fiscal environment."


I would have to disagree. McCain IMHO DOES hate airline pilots. He thinks (along with Lott) that even JBlu pilots make too much money. McCain has no trouble giving as much money as possible to AWA.


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Speedbird

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[blockquote]
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On 1/10/2003 10:12:04 AM whatkindoffreshhell wrote:

Whilst Senator McCain has my greatest respect he is playing politics to a certain extent here.
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[/blockquote]


Well, since the good senator is a politician, this shouldn't be such a big surprise to anyone. Of course, Senator McCain isn't the only one "playing" politics here. But then again this is just how the airline game is played.

IMO, your statement about international carriers needing government support represents an archaic view of the business. First off, the EU would block such a blatant move, especially after the US cried for years that their (EU's) flag carriers had to come off their respective government tits, and run their businesses like those in the US.

Second, nobody put a gun to the head of the major hub and spoke airlines to make them act like public utilities. These airlines are in business to make money (at least that was the original idea) and if a portion of the business doesn't produce the necessary financial returns, then get rid off it. That will put the monkey back on the politicians when their rural constituents scream bloody murder. Believe me that will get their attention!

Lastly, McCain doesn't hate airline employees. He just hates giving more government handouts to poorly managed companies in the current fiscal environment. Even though we all think the airline business is the center of the universe, many others don't, and some of those people also own the gold (reference to the golden rule).
 

Busdrvr

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[blockquote]
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On 1/10/2003 10:32:06 AM Diesel8 wrote:

No, HP cannot fly to any destination with troops, but then that is the job of the military. I am sorry, but giving money to the majors because of CRAF is ridiculous. Had you said because of the US infrastructure, I would have been more likely to agree!
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[/blockquote]

The ENTIRE C-17 and C-5 fleets WERE MAXED OUT by little old Afghanistan. Do you REALLY think the US could do a Gulf War (IRAQ) or NK conflict without CRAF?
 

Speedbird

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"How many Airlines Does France have? Germany? GB? Italy? Canada? If Traffic drops in LH's markets, they simply cut back capacity. they do NOT have the same level of "competition"."

Busdrvr, I guess you haven't been keeping up with current events in Europe. Have you ever heard about Ryanair & Easyjet? They are the curent low-cost juggernauts in Europe, and are putting a tremendous amount of competitive pressure on the airlines listed in your post, much like here in the US. However, unlike here, Europe doesn't have the same bankruptcy protection laws, and airlines are either being liquidated, or they're being forced to evolve. So far it hasn't brought down their industry. There are no special favors, or significant government interference to pick the winners and losers, based on politics.

But despite that, my point dealt with the bad proposal on this thread to have the US government subsidize international service on behalf of US airlines.

It ain't gonna happen.

Now I love the new WOD being thrown around by the establishment to excuse away, or fault the method in how low-cost airlines are making money. That word being "cream." At the same time, these folks paint the picture that they are providing an essential public good by serving all communities, both large and small.

Let me raise the BS flag on that right here.

Like I've posted before. Nowhere did anyone say that legacy airlines were forced to act as public utilities. I didn't read that in any of their annual reports either. So let's stop kidding ourselves with such altruistic and phoney declarations.

If an airline can't produce the revenues to support the service, then stop doing it. If people have to move then so be it. It happened with the railroads, the interstate highway system, and now perhaps with airline service. Life in these United States will continue to move on.

As for low-cost airlines going after the "cream," well good for them.

All airlines should be in the business to make money for their shareholders. If LUV & B6 can only do that by flying in selective markets, then so be it. At least they are performing with the correct fiduciary responsiblities. If the industry falls down and takes with it the entire over-arching economy, then the federal government can step in and re-regulate it as a public utility. So far, the jury is still out on that scenario coming to fruition.

I'd hold my breath on that one, but I'm already Blue.
 
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[blockquote]
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On 1/10/2003 10:32:06 AM Diesel8 wrote:

Had you said because of the US infrastructure, I would have been more likely to agree!
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[/blockquote]

Please read my post again. The gov't is subsidizing airlines to fly to EastBumFuch just as the feds built highways to connect everyone.

Don't use Ryanair & Easyjet as exmaples of Euro-openmindness either. The euros have been supporting their flag carriers for years and will continue as a matter of national pride. AirFrance reporting a profit is as much a accounting joke as Enron.

The USA should and does support airlines as a matter of not only national security, but world peace.
 

WingNaPrayer

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During Daddy Bush's "conflict" to rescue the oil in Kuwait, HP could....and did ferry troops on their 747s. Those troops also pretty much wrecked the hell out of HPs big birds. HP had not had their 747s very long, and had just begun their service to HNL and Nagoya...and it was a very nice service and great on-board amenities but, it was never any secret that Daddy Bush's little war in the cities of oil caused HP to fall into bankruptcy after it was over, they simply couldn't pay for the aircraft leases on the peanuts that uncle sam was paying them to ferry the 17 and 18 year old snot nosed brats with rifles that ripped their jets up so bad they had to be taken out of service for interior repairs before being put back on routes again - which, by then, had long been abandoned by the customer base that they had started to build. And no, uncle sam did not pay any of the airlines for any of their damages, thank you CRAF, you get 88 bucks a head and fuel at cost... and that's it.[BR][BR]I understand AA had some damaged aircraft after that conflict also, but HP being my carrier of choice at the time, I paid more attention to them. I'm sure someone out there remembers Desert Storm and what it did to AA.[BR][BR][BR][BR]
 

Busdrvr

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Aug 20, 2002
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[blockquote]
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On 1/10/2003 12:02:00 PM Speedbird wrote:

"Busdrvr, I guess you haven't been keeping up with current events in Europe. Have you ever heard about Ryanair & Easyjet? They are the curent low-cost juggernauts in Europe, and are putting a tremendous amount of competitive pressure on the airlines listed in your post, much like here in the US. However, unlike here, Europe doesn't have the same bankruptcy protection laws, and airlines are either being liquidated, or they're being forced to evolve. So far it hasn't brought down their industry. There are no special favors, or significant government interference to pick the winners and losers, based on politics."

So what you're saying is the local politicians at say Heathrow or Frankfurt won't give them a "special" deal on slots and fees? You're an accountant, add up all the German airlines. Having 2, 3 or evn 5 airlines in a country still doesn't even come close to the market situation we have in the US. Keep in mind, the US government rejected UALs bid to buy U in a deal that would have given UAL only about 25% of the domestic market. What industries in the US do we have, other than the airlines, where the dominate corporation is not allowed to have 25% of the market. Remember, the low fares protested the merger on the grounds that the deal would be too good for the business (the network) so it would be anti-comp. They feared the business pax would be willing to spend more money for the added conv of the UAL-U network, rendering the low fare player irrelevent. So now, too good for the business pax is a "bad" thing.

"But despite that, my point dealt with the bad proposal on this thread to have the US government subsidize international service on behalf of US airlines."


I think a government has to look at the big picture. Do they want US carriers flying internationally? UAL just pulled the plug on NZ. Now that market is served only by two for carriers. The whole reason foreign entities are not allowed to own more than 25% of any US carriers is the fear that they may then be able to use that control to disrupt a vital US industry. Can't the same be said for international air service into the US? Do we want to give the EU (or a few companies in the EU) the power to control OUR international service AND COMMERCE? But what if say the Mexicans can do all US to MEX service cheaper than we can. Why not let them do it all? I'll take that argument one step farther. Don't you think Mexicana pilots would be willing to do YOUR job even cheaper? How about MEXICANA mechanics? (mechanics will be those guys actually working on your jets when the warentee expires and you actually have to pay them). Mexicana F/A's? Why not just bring in for. companies with a bunch of green card employees to do our entire aviation system. of course if we POed thier country, they could cripple ours, but it would be cheaper right?

"It ain't gonna happen."

We'll see. Intl carriers are subjected to a much higher level of rick than a domestic only carrier. Just consider the implications of exchange rate policy. In the first year Rubin was treasury sec the dollar went from around 80 yen to over 120. Try to plan a business model around those factors.

"Now I love the new WOD being thrown around by the establishment to excuse away, or fault the method in how low-cost airlines are making money. That word being "cream." At the same time, these folks paint the picture that they are providing an essential public good by serving all communities, both large and small.

Let me raise the BS flag on that right here.

Like I've posted before. Nowhere did anyone say that legacy airlines were forced to act as public utilities. I didn't read that in any of their annual reports either. So let's stop kidding ourselves with such altruistic and phoney declarations."


Correct, but lets look at the taxation model we've created. The non-security fee's and taxes are usually based on ticket price. An A320 uses the same amount of govt resources as a 747-400 on the same route. The current system charges the "legacy" airlines considerably more for use of that same resource. Fair? Why should a UAL 747-400 from LAX-DEN pay 3 or 4 times the fees a FRNT A319 on the SAME route pays? If FRNT (or some other "efficient" single A/C type airline) flies 20 flights per day on a given route vs 6 for a legacy carrier using larger A/C, who should have to do the holding when the airport is overtaxed? Legacy airlines gain efficiency by routing people through a hub, the current system punishes that efficiency and rewards the inefficient use of a scarce resource. Fix that prob, and then I'd agree with you contention

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KCFlyer

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[STRONG]Yes it would, Anderson of NWA pointed out that NWA serves 6 (or seven) destinations in Miss, vs one for SWA. [BR][BR][/STRONG]I hate to get picky with you busdriver, but NWA only serves two cities in Mississippi - [STRONG][EM]Mesaba[/EM][/STRONG] on the other hand serves 7 cities in Mississippi.[BR]
 

Busdrvr

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[blockquote]
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On 1/10/2003 1:29:31 PM KCFlyer wrote:

[STRONG]Yes it would, Anderson of NWA pointed out that NWA serves 6 (or seven) destinations in Miss, vs one for SWA.

[/STRONG]I hate to get picky with you busdriver, but NWA only serves two cities in Mississippi - [STRONG][EM]Mesaba[/EM][/STRONG] on the other hand serves 7 cities in Mississippi.
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[/blockquote]

Hey, I'm just quoting Anderson from the hearings (see I watch TV to
 

HI-LOCK

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Mr.McCain was focused on labor costs and He has airline employees in his sights.He will cooperate with airline management to drive down wages and benefits for airline employees.He also appears to want to axe the Railway Labor Act.The ALPA representative made a good case for why the RLA should remain as is.
 

WingNaPrayer

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[P]
[BLOCKQUOTE][BR]----------------[BR]On 1/10/2003 8:21:45 PM AC AA LA FA wrote:
[P]As a crew member I have shuttled those"snot nosed brats" many times accross the atlantic..On CRAF,MAC and CAM flights, and I will have to say they were well behaved and respected us as crew and our aircraft. I do not know where you get your information WNP..but you could not be further from the truth..AW woes and those old delapitated 747s were in a nose dive far before our troops set foot on them headed for the mid east. It was a yeild mgmt prob along with other bad business manuvers..not foot prints on the bulkheads...I would take a plane full of military personal over any "business" pax anyday...these "kids" are model pax and could teach joe business a thing or two about behavior...[BR][BR]..and as for AAs equipment...the cabins returned to the line in the same condition the left?? [BR][/P]----------------[/BLOCKQUOTE]
[P]I have to disagree again. I specificially rember getting my phoenix club news letters after that conflict detailing the damages to the aircraft caused by the "snot nosed brats" and that it was the reason service was not being restored as quickly as hoped on HPs pacific routes.[BR][BR]As for the equipment - those were not old dilapidated 47's, I flew on those aircraft many times and they were always in very well kept condition.[/P]